Valeant Pharmaceuticals (NYSE:VRX) has been on a wild ride over the past several years. It was once the stock market darling when its stock price jumped from $40 per share in 2012 to $250 per share in July last year. Then it plunged to only $87 at the time of this writing. Investors have been in doubt about the company’s business model and accounting practices. However, value investors such as Lou Simpson (Trades, Portfolio) and T Rowe Price Associates have been buying its shares. Should we follow them into this stock? Let’s dig deeper.
In October last year, Citron released its bearish research on the company. Citron focused on the company’s relationship with Philidor and R&O Pharmacy. It pointed out that Philidor and R&O Pharmacy were the same company with the same toll-free number to reach the privacy officer. Citron also compared the company with infamous Enron, the company with hot stock and fraudulent accounting in 2001. Before joining Enron in 1990, Jeff Skilling had no experience running a business, having spent 11 years working for McKinsey. Michael Pearson, Valeant's ex-CEO, also worked for McKinsey for 23 years before joining Valeant. Citron thought that when others discovered Philidor, Valeant said the company had purchased an option to acquire Philidor in late 2014. In the report, Citron lowered their target price to $50 per share. Continue Reading »